For the last few years, despite robust GDP, productivity growth, and job creation, the average income of US workers has been rising at a very slow rate. Some of this was attributed to 'outsourcing', but this is not the case, as job creation would also have been weak, rather than just wage growth.
The reason for low wage growth has been healthcare costs greatly outpacing inflation during 2000-05. This consumes money that employers would have otherwise distributed towards employee salaries. Some of the rise in healthcare costs is due to an aging population, and some of this is due to the growing number of illegal immigrants not paying into a system they are using.
The chart below from the Bureau of Labor Statistics shows how the increased costs of benefits (mostly health insurance) has left little remaining money for salaries to rise. This is in sharp constrast to the late 1990s, when salaries could rise more rapidly due to subdued increases in healthcare costs.
In fact, the perception that the economy is weaker now relative to the late 1990s, despite nearly every economic indicator being comparable between the two periods, could be entirely due to this. People are getting weaker raises even when employers have increased spending on employees each year.
But we may be over the hump, as the data is finally trending in a favorable direction. Michael Mandel's blog has observed a decline in some of the technology-related components of healthcare costs. The costs of medical labs and imaging centers stopped rising altogether in the last year. Mandel says this may be due to competition, but I think this is due to technology. Not only are many advanced instruments subject to The Impact of Computing, and thus improving in power and number every year, but new drugs and gene therapies provide treatment that sometimes avoids hospital stays altogether. Exponentially improving technologies are pervasively moving into medicine to deliver faster, cheaper, more effective treatments, and this saves money even for people who are not users of them.
If the moderation in the price of high-tech medical costs continues, US wages may rise as employers can pass more on towards salaries instead of health insurance premiums.
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